Yen Falls to 3-Month Low as Japan Faces Political Uncertainty

The yen hit a three-month low following Japan’s ruling coalition losing its majority in parliamentary elections, spurring investor concerns over possible fiscal stimulus and complicating the Bank of Japan’s policy plans. UK markets await Labour’s first budget on Wednesday, with investors selling stocks and gilts as they anticipate fiscal challenges. Meanwhile, peak earnings season is underway in the US, with 150 S&P 500 companies, including tech giants Alphabet, Microsoft, Meta, Apple, and Amazon, set to report third quarter results this week.

Equities

The FTSE 100 slipped 0.3% on Friday as mixed corporate earnings and budget concerns weighed on investor sentiment. Close Brothers Group dropped 25%, while Lloyds Banking Group fell 7.3% following a London court ruling requiring motor finance brokers to fully disclose commissions on car loans. NatWest shares edged up 0.6% after it raised its income forecast for 2024.

Abrdn saw another drop, falling 3.1%, adding to an 11.2% decline from the previous session as the firm reported unexpected client fund outflows in the third quarter. British consumer confidence also fell to a March low amid budget concerns, likely linked to potential tax increases as the government readies its fiscal plan for October 30.

In the United States, the Nasdaq finished the week on a positive note, climbing 0.56% on Friday. Tesla’s shares rose 3.36%, building on the previous day’s 22% surge following an optimistic sales forecast. Amazon, Apple, and Microsoft also saw gains, while Nvidia briefly overtook Apple as the world’s most valuable company, driven by robust demand for its AI-related chips.

The S&P 500 remained relatively flat, edging down by 0.03%, while the Dow Jones dropped 0.61%, pressured by losses in the banking and consumer sectors. Goldman Sachs fell 2.27%, and McDonald’s slipped 2.97%, with the latter contending with an E. coli outbreak linked to its hamburgers.

Fashion firm Capri Holdings plummeted 48.89% after a US judge blocked its planned merger with Tapestry. Shares of Tapestry rose 13.54% on the back of the ruling. Meanwhile, regional bank New York Community Bancorp declined 8.26% following its fourth consecutive quarterly loss, largely driven by struggles in its commercial real estate loans.

Forex & Commodities

The US dollar index rose by 0.18% to 104.24 on Friday, marking a fourth consecutive week of gains. Stronger-than-expected US data, including a 0.5% rise in business spending in September and an improved consumer sentiment index of 70.5 for October, solidified expectations that the Federal Reserve will maintain a measured approach to rate cuts. This backdrop lifted US Treasury yields, with market participants closely watching next week’s payroll report for further guidance.

The euro slipped 0.22% to $1.0803, while the dollar gained 0.26% against the yen to 152.21, with Japan preparing for a general election and the Bank of Japan (BOJ) expected to maintain its ultra-low interest rate stance next week.

Gold dropped 0.4% to $2,735.47 per ounce, pressured by the dollar’s strength, though it remains well-positioned to advance towards $2,800 pending key US economic data this week. China’s year-to-date gold consumption fell 11% as high prices deterred jewellery purchases, while physical gold prices declined alongside silver, which fell over 1% to $33.35, and platinum, down 0.7%.

Oil prices tumbled more than 4% after an Israeli airstrike over the weekend avoided Iran’s oil infrastructure, easing supply disruption fears. Brent crude fell $3.46 to $72.59 per barrel, and West Texas Intermediate (WTI) dropped $3.37 to $68.41. The price decline came after a volatile week of gains, with analysts noting that restraint in the recent strikes could allow for a potential diplomatic resolution, reducing the risk premium on oil prices.